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Deal should let Encana double local well numbers

A new joint venture between Encana USA and a steel maker could enable Encana to drill more than 4,000 wells in western Colorado over the next 20 years.

That’s double the company’s current statewide well count. About 3,000 of those wells are in the Piceance Basin.

Encana and Nucor Corp. have entered into a cost-sharing agreement for natural gas well development on 50,000 acres where Encana owns leases on a federal leasing unit straddling Garfield and Rio Blanco counties.

“This is a unique partnership that has been designed to support Nucor’s increased use of natural gas for their facilities, such as their direct reduced iron facility currently under construction in Convent, Louisiana,” Jeff Wojahn, Encana’s president of USA Operations, said in a news release.

Under the agreement, it will operate the joint venture drilling program and handle creation of gas gathering pipelines and other infrastructure, and Nucor will pay its share of costs plus additional interest as each well is drilled, with Nucor’s payments subject to certain caps.

Encana said in its new release that the agreement is in addition to a smaller gas drilling agreement established with Nucor in 2010.

“These two agreements with one of America’s largest steel manufacturers signify a new era of long-term partnerships between the natural gas industry and industrial consumers that provide large manufacturers with economic and environmental incentive to expand operations in the United States to take advantage of abundant and secure natural gas resources,” Encana said in the release.

The deal comes as Piceance Basin energy companies are coping with low natural gas prices that have caused some of them, but not Encana, to suspend drilling.

Said Wojahn, “This agreement gives Encana the cost certainty to execute our long-term development plans while also providing Nucor with a sustainable competitive advantage in natural gas energy costs.”

The agreement spells out a range of wells that otherwise must be drilled each year, with the companies jointly determining the actual annual number.

In its own news release, Nucor said the deal “will ensure a reliable, low cost supply of natural gas for our existing and expected future needs for more than 20 years. “

Nucor’s new iron plant will help provide iron to its steel mills, and will significantly increase its use of natural gas, the company said. It said it may add additional direct reduced iron capacity at the Louisiana site, further boosting gas usage.

It also consumes substantial amounts of natural gas at its U.S. steel plants, it said. Its two agreements are expected to provide enough gas to equal its use at all its U.S. steel plants and two iron facilities.